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Thursday, 4 October 2018

Factors Affecting Choice of Distribution Channel

   Because a channel of distribution should be determined by customer buying patterns, the nature of the market is the key factor influencing management's choice of channels. Other major considerations are the products, the middle man, and the company itself. Basically when selecting it's channel or distribution, a company should follow the criteria of the three C's channel control, market coverage, and a cost that is consistent with the desired level of customer service.

   Perhaps the most obvious point to consider is whether the product is intended for the consumer or industrial market. If it is going to the industrial markets, of course retailers will not be included in the channel. In either case, other significant market variables should be considered.

1) Number of Potential Customers; with relatively few potential customers, a manufacturer may use its own sales force to sell directly to consumers or industrial users. For a large number of consumers, the manufacturer would more likely use middlemen. A related point is the number of different industries to which a firm sells. One company, marketing drilling equipment and supplies only to the oil company so directly to users. A paper product manufacturers, on the other hand made extensive use of industrial distributors to reach many different industries.

2) Geographical Concentration of the Market; Direct sale to the textile or the garment manufacturing industry is feasible because more of the buyers are concentrated in a few geographic areas. Even in the case of a national market, some segments have a higher density rate than others. Sellers may establish sales branches in densely populated markets, but they would use middlemen in the less concentrated market.

3) Order Size; A food products manufacturer who sell directly to large grocery chains because the large order size and total volume of business makes this channel economically considerable. The same manufacturer, however would use wholesalers to reach the small grocery stores whose orders are usually too small to justify direct sales.